Related

The price earnings ratio is a measure of how much money your business earns for its investors. A high price earnings ratio indicates investors receive few profits for their investment, while a low ratio indicates they receive high earnings for a small profit. Calculate the price earnings ratio by starting with the firm's total equity.

1

Add the total equity from the beginning of the period to the net income over the period.

2

Subtract the total equity at the end of the period. This gives you the earnings, or the total amount of dividends paid to shareholders.

3

Divide the total dividends by the number of shares outstanding. This gives you the earnings per share.

A300 mobile placeholder

4

Divide the share price by the earnings per share. This gives you the price earnings ratio.

References

Photo Credits

Creatas/Creatas/Getty Images

About the Author

M. Scilly is a writer and editor who writes for various online publications, specializing in business and management. He has a fondness for travel and photography. In his free time he enjoys marathon training.